Five years of the disclosure regime have had little impact on IFA
commission, says a PIA report.
But it shows that personal pensions have been affected by the proposed 1
per cent cap on stakeholder which has caused char ges to fall by as much as
75 per cent. The trend in personal pensions is revealed by the drop in
reductions in yield. The RIY on a 25-year personal pension fell by 0.3 per
cent to 1.6 per cent between 1995 and 1999.
The industry believes the trend will be repeated across the personal
finance industry and have a knock-on effect on commission.
Sofa press spokesman Robert Reid says: “It is inevitable that stakehol der
will drive charges down and disclosure is the accidental beneficiary. But
the squeeze on margins means that the trend will not be restricted to
pensions in future.”
The report also shows that investors have seen small but continuous falls
in charges and expenses on other products, especially bigger-selling
products such as single-premium investment bonds.
The biggest improvement in RIYs was for 25-year mortgage endowments, with
the average RIY falling from 1.7 per cent in 1995 to 1.3 per cent in 1999.
Average RIYs on 10-year with-profits endowments have fallen from 3.4 per
cent to 3 per cent.
Despite falls in average RIYs, the range of charges across all products
offered by life insurers and fund managers remains wide. Charges can make
the most expensive pension plans worth half as much as the cheapest plans
in the early years.
The figures show that United Assurance's unit-linked personal pension
would be worth £2,060 after five years compared with Direct Line's £4,256
if £60 a month were contributed and both plans grew at 7 per cent.
The gulf narrows on maturity. After 25 years, United's plan would be worth
£32,900 compared with £44,080 for Direct Line, provided both returned 7 per
But insurance analyst Ned Cazalet of Cazalet Financial Planning has
attacked the report. He says: “Because the report is historical, it does
not take into account the fact that many companies have recently dropped
endowments. It also does not account for the fact that stakeholder is
The report will be replaced by the FSA's “real-time” comparative tables
PIA chairman Joe Palmer says: “The report helps consumers to identify
products and providers which maintain the right balance between good
investment performance and low charges and expenses.”
The report concludes that a greater proportion of tracker funds incur
lower charges so they meet the Cat standard for Isas.